Clarkson v. Dunning — 22 N.Y. St. Rep. 73

Majority

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Theodore Clarkson, Resp’t, v. Frances G. Dunning, App’lt.

(Supreme Court, General Term, Second Department,

Filed February 11, 1889.)

Headnote

1. Partnership—Promissory notes—When judgment can be taken

AGAINST ONE PARTNER, SOLELY.

On the 2d day of March, 1874, William. B. Lang conveyed certain premises to his daughter, the defendant. In January, 1878, Lang & Co. made three notes, payable at a future date. The notes, before maturity, passed into the hands of one Garrison. Garrison’s executor recovered judgment thereon, but against Lang only. In November, 1877, Lang was adjudged a bankrupt and an assignee was appointed. The assignee did not assail the defendant’s title and was duly discharged. In May, 1875, Lang sold out his interest in the firm to his partner, one Wheeler, for $25,000, secured by a mortgage, which mortgage was assigned by Lang to Mrs. Bailey, his daughter, reserving a life interest to himself. The assignment was made in September, 1877, and on the same day the life

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interest was assigned to the Low Moor Iron Company. There was an indorser on the Garrison note, but no judgment was obtained against him: Held, that Lang was individually liable upon the note, and a judgment can be taken against him, solely.

3. Fraudulent conveyance—Assignee in bankruptcy.

Held, that the plaintiff having recovered a judgment, has a right to attack the transfer, and the assignee having been discharged, cannot question his rights.

3. —Same—When fraud will not be presumed.

Held, that as fraud is a question of fact, and the Garrison notes being made after the transfer and for a subsequent indebtedness, fraud cannot be predicated of the transfer.

4. Same—Sufficiency of evidence.

Where the only proof of insolvency was that Lang was surety on an appeal from a judgment of some- $17,000 given in January, 1874, and on a bond for $30,000. As against this amount there was $10,000 in personal property and an undefined interest in a business which subsequently brought $35,000—what it was then worth does not appear: Held, that no presumption of fraud can be predicated upon the evidence, or that the transfer in March, 1874, was made in fraud of creditors.

Appeal from a judgment of the special term upon issues of fact, and also seeks to recover an interlocutory judgment sustaining a demurrer to certain defenses contained in the answer.

This is an action by the plaintiff, as assignee of a judgment creditor of William B. Lang, to set aside a transfer of certain real estate made by Lang to the defendant, Frances G. Dunning, in 1874, on the ground that it was made with the intent to hinder, delay and defraud creditors. .

Harris & Corwin, for app’lt; Thomas M. Wheeler, for resp’t.

—On the 2d day of March, 1874, one William B. Lang, executed and delivered to the defendant, his daughter, a deed of the premises in question which was recorded in June, 1874.

In January, 1875, W. B. Lang & Co. made three notes payable at a future date. These notes all matured in 1875, and before maturity, passed into the hands of the late C. K. Garrison. Lang’s partner was one George M. Wheeler. Garrison’s executor recovered a judgment against Lang June 20th, 1877. The action was commenced against both partners, but judgment was taken only against Lang, and the execution was issued on this judgment.

In November, 1877, Lang was adjudged a bankrupt, and an assignee in bankruptcy was duly appointed. The assignee did not attempt to assail the defendant’s title, and was duly discharged.

In May, 1875, Lang sold out his interest in the firm to his partner Wheeler for $25,000, secured by a mortgage on lands of Wheeler’s wife.

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The mortgage was assigned by Lang to a Mrs. Bailey, his daughter, and by its terms reserved a life estate in the mortgage to Lang himself. This assignment was made 14th of September, 1877, and on the same day the life estate interest was assigned to the Low Moor Iron Co. Both of these assignments were recorded soon after. There was an indorser on the Garrison notes, one S. G. Wheeler, and no judgment has ever been obtained against either the partner-Wheeler or the endorser Wheeler. Three questions are presented. Will ail action lie against the defendant without an attempt to enforce a legal remedy against the other partners to the note? This question must be answered in the affirmative. The partner Lang was individually liable upon the note, and a judgment could be taken against him solely, which was done. An execution was duly issued on this judgment, and the remedy of law was thereby exhausted as to these lands. Royer Wheel Co. v. Fielding, 101 N. Y., 504 .

Was the assignee in bankruptcy a necessary party? The United States bankrupt law provides for a discharge of an assignee upon settlement of the accounts, but makes no provision for subsequently discovered property. The plaintiff has the right to attack the transfer, having a judgment, and there is no present assignee to question his rights.

Was the transfer fraudulent and void as against creditors? The Garrison notes were made after the transfer, and the rule is that fraud is a question of fact, and subsequent indebtedness does not of itself show fraud. Babcock v. Eckler, 24 N. Y., 630 ; Philips v. Worcester, 36 id., 412; Dygert v. Remerschnider, 32 id., 629; Jackson v. Badger, 109 id., 632; 15 N. Y. State Rep., 92.

Was Lang insolvent when the deed was given to plaintiff ? The proof shows that Lang sold out his interest in the business of William S. Lang & Co., for $25,000, in May, 1875.

There is no proof of any insolvency at this time. This sale was over a year after the transfer, and over two years before the insolvency was declared. The only proof of insolvency in that case, is that Lang was a surety for one of the Wheelers on appeal from a judgment of $17,531.72, given in January, 1874, and on a bond for $30,000, to secure a judgment of one Ledgerick, assignee, against George M. Wheeler. The amount of the Ledgerick judgment is not given. They were affirmed on appeal, and who paid them is not known. This will not justify a finding that the grantor owed the amount of those two bonds, and that was more than his property remaining after the sale to defendant. The affidavit of Lang to the justification of the $30,000, bond was not proper evidence but does not show that Lang’s remaining property was not more than sufficient to pay mort

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gage debts. Besides the property in question, he states that he had at Searsdale $10,000 in personal property, a mortgage of $6,000, and that all his other estate was invested in the business. He sold this interest for $25,000, subsequently. What it was worth some two years before, does not appear. Assuming, therefore, that the penalty of $30,000 was the debt, there is no - proof of insolvency. As against $47,000 there was $16,000, and an undefined interest in a business which subsequently brought in cash or its equivalent, $25.000. No presumption of fraud can be based upon the evidence. The letter of Chin assignee to Little, registered, was not evidence against the defendant. He states in this letter that the business of Lang & Co., was bankrupt “ many years,” as a reason why so great amount of nominal assets realized so small an amount of cash.

No figures are given which show the value of the business in March, 1874, when the defendant took his title.

The bankruptcy of Lang was an incident of the bankruptcy of George M. Wheeler, who bought out the interests of Lang. We think therefore, that the evidence fails to support a finding that Lang was solvent, and made this transfer in fraud of creditors, in March, 1874. It is not necessary to pass upon a question of limitation. If the respondent is right that /the assignee in bankruptcy had no right to institute an action to set the deed aside, and if the plaintiff’s assignor knew of the alleged fraud over ten years before bill filed, it is very doubtful if the waiting to obtain judgment and issue exception, will suspend the operation of the action. The judgment, on the merits, should be reversed, and a new trial granted, costs to abide event.

Pratt, J., concurs; Dykman, J., not sitting.